Changes in Construction Materials Prices, 2001-2007 (Updated March 16, 2007)

Since early 2004, the construction industry has been buffeted by a succession of steep price increases affecting a variety of materials. The attached tables document these increases, using the Bureau of Labor Statistics (BLS)’s overall consumer price index for all urban consumers (CPI-U), the producer price index (PPI) for finished goods, and PPIs for specific construction segments and inputs.

Background on PPIs

Each row shows the BLS series identifier and name for a PPI (or CPI), the 12-month percentage change in that index to December 2001-2006, and the percentage change through the latest month from one, three, and 12 months before. Percentages are calculated by BLS and downloaded for PPIs from the PPI website, www.bls.gov/ppi, at the page for "Create Customized Tables (one screen)”; most are commodity indexes, except for new warehouse, school and office construction and five construction types, which are industry indexes. The PPIs shown are available only at a national level.

To provide consistency, “not seasonally adjusted” indexes have been selected for all items. For many of the items BLS does not post a seasonally adjusted index, either because the item shows little seasonal variation in price or there is not enough data available to calculate a seasonal adjustment. However, prices of items such as natural gas do show wide seasonal swings; for these PPIs, a large one-month or even three-month change may not be unusual.

As the name implies, the PPI for a commodity measures the price charged by a producer of that item or category. The index does not include any costs the buyer incurs beyond the producer’s loading dock or other point of sale, such as insurance, freight, storage, fabrication, or installation. Such costs are considerable for many construction inputs and may change at rates different from the PPI, but these rates cannot be estimated from PPI data. There is no PPI for construction labor, and the PPIs for trucking and insurance are not specific enough to indicate the specialized services and products used in construction.

The PPIs chosen for these tables are believed to be the closest approximation to items actually used or bought for construction. Some PPIs cover a wider range of materials than items used specifically in construction. For instance, steel mill products include steel used in motor vehicles, appliances, equipment, etc., as well as construction. Other PPIs, like those for concrete products, reflect materials used solely in construction. An industry PPI measures the costs of all items used by an industry. Readers are encouraged to scroll through the indexes on the PPI website and suggest other indexes to include in these tables. But note that data is not currently available for some of the indexes listed on the website, probably because too few producers submit data to BLS.

Organization of PPI Tables

The first six rows compare the CPI-U with the PPIs for finished goods, materials and components for construction, and new warehouse, school and office construction (currently, the only PPIs for completed structures). The construction materials PPI is a weighted average of the PPIs for all materials used in every type of construction, including single-family homebuilding and improvements. Because the single-family market accounted for nearly half of all construction in recent years, materials used in that segment count heavily in the overall construction index.

The second set of indexes, “Changes in PPIs Weighted by Construction Types,” shows the PPIs for different construction segments, reflecting the respective weights of materials and components used in highway and street construction, other heavy construction, nonresidential buildings, and multi- and single-family new construction.

The third set includes “Changes in PPIs for Specific Construction Inputs.” Items are grouped into petroleum-based products; concrete and brick products; miscellaneous materials; and metal products. Indented index names show that the item is a subset of the last unindented item above it; this relationship is also shown in BLS’s numbering system, which assigns an extra digit or two to subcategories. For instance, “WPU1331 Concrete block and brick”, is indented to show it is included in the index for “WPU133 Concrete products”.

At the bottom are indexes covering “Changes in PPIs for Basic Inputs,” divided into nonmetals, and metal ores and scrap. Recent changes in these indexes can foreshadow changes in materials made from these items.

Changes in Construction Costs

In general, through 2003 most construction materials show very modest increases and many decreases in price, similar to the overall PPI for finished goods, which fell 1.6% in 2001, rose 1.2% in 2002, and rose 4% in 2003. Beginning in 2004, however, numerous construction materials have had one or more periods of double-digit increases, whereas the finished-goods PPI has continued to rise at a 1-5% annual rate.

In the latest report, petroleum and product prices rebounded from steep declines in previous months, pushing up the finished-goods PPI and the rate of increase in the construction materials and components index. There were also large price jumps for scrap iron and steel, construction sand/gravel/crushed stone and industrial natural gas. These contributed to rising PPIs for concrete and steel products. Further increases in diesel fuel, asphalt and steel have already occurred or been announced. More favorably, the PPI for gypsum products and insulation materials fell as homebuilding shrank.